North County's commercial real estate market -- dealt a big blow by the meltdown of the dot-coms back at the turn of this century, followed immediately by the debilitating one-two combination from the recession, the vacation of hundreds of thousands of square feet of office space by Peregrine (OTC: PRGNQ) and drastic space scalebacks by other high-tech highfliers -- has started the second half in 2003 with a "second wind" stronger than has been seen in about two years.

A year ago, Robert J. Bell, co-partner in charge of the Carmel Valley/Del Mar office of Luce, Forward, Hamilton & Scripps LLP, said there was "as much subleasing taking place in North County as there is direct leasing."

In 2003, according to Rick Reeder, an owner/broker of BRE Commercial and member of the Society of Office and Industrial Brokers, a series of sizable straight leases -- not subleases -- have removed several hundred thousand square feet of prime office space from submarkets such as Del Mar Highlands, and Carlsbad's office market is looking much healthier, too. Rental rates, which a year ago were highly negotiable, began heading back up earlier this year and are continuing upward pressure, he said.

"In comparison to the recession of the 1990s, this one is looking to be relatively short and less debilitating," Reeder said. Giving credit where it looks to be due, he attributed North City/County's commercial real estate turn-around-in-progress to the stock market (the same market whose drubbing had humbled so many local tech firms); to the Federal Reserve (for taking so many little bites out of short-term interest rates over the past two years to achieve 40-year lows); to the region's sizzling housing market; to San Diego's attractive quality of life and the overall health of the regional economy in comparison to other major cities; and to the shortage of land readily developable for new office and industrial park facilities north of Highway 56.

Reeder noted that many large investors who withdrew early from the crumbling stock market turned to commercial real estate as the attractive alternative for "parking" their money -- particularly commercial real estate in North County. Thanks to the Fed, investors have been purchasing prime office properties at coveted North County addresses for full asking prices -- prices that just a year ago sellers would have considered wishful thinking.

With interest rates so low, the new buyers are able to "pay more" but still enjoy positive income streams and tax benefits from the get-go. It makes for win-win scenarios unlike those experienced during early recoveries from previous recessions.

Cymer Inc.'s (Nasdaq: CYMI) recently completed a $45 million, 265,000-square-foot office and laser manufacturing facility at its world headquarters in Rancho Bernardo is a model of confidence as well as of fast-track development at its speediest. Hands-down the most rapidly built new commercial project, the Austin Veum Robbins Parshalle-designed facility was started in May 2003 and completed ahead of its aggressive 11-month fast-track schedule. Among the reasons why the international leader in excimer light sources elected to start the new facility during a recession was to position itself for immediate response to revived demand anticipated next year.

Rancho-Bernardo based Cymer Inc.'s 265,000-square-foot office and laser manufacturing facility, as shown in the rendering above, is one example of a fast-track development. It was completed in 11 months.

Still, North City/County is not awash in construction of new office/industrial/R&D properties as it was in the late 1990s into 2001 -- in part attributable to the ongoing absorption of new and sublease space. Reeder feels that projects in the pipeline will serve the needs of industries that are in or are entering recovery.

It will be difficult to overbuild North City/County in the immediate future because there is relatively little zoned and developable commercial property available, he said. The ocean, existing suburbs, shopping centers and parklands, military/government property ownership, geographic factors, and zoning for non-commercial uses are among the many restraints that should limit overheating of commercial real estate development as the recovery continues.

Phil Lyons, a BRE Commercial partner specializing in North County retail, noted that retail, like office, has entered a recovery.

Lyons said the North City/County retail market also is the beneficiary of a housing boom driven by low mortgage interest rates, as is apparent in the tenants of new and redevelopment projects in the works. In Oceanside alone, facilities are recently finished or under way for Lowe's (NYSE: LOW) (Old Grove Marketplace), Home Depot (NYSE: HD), Wal-Mart (NYSE: WMT), Ralphs and a combined Albertson's (NYSE: ABS) and Sav-On. Kohl's Department Stores' (NYSE: KSS) push into the county with five stores opening simultaneously next spring, including stores in Oceanside, Poway and San Marcos.

Downtown Vista's long-awaited Vista Village redevelopment project, anchored by a 15-screen Krikorian multiplex, at last is under construction.

"As long as interest rates stay about where they are and the housing market continues strong, we have a perfect scenario for retail," he said. "Interest in retail investment via 1031 exchanges has been very strong because favorable interest rates have pushed up the value of existing retail properties -- anchored centers, of course, but also unanchored centers. We're seeing a lot of repositioning occurring or planned for older centers in terms of new anchors as well as new shop tenants."

Reeder sees a subtle but fundamental change in the dynamics of the North City/County commercial real estate market. Decisions about office and industrial facility occupancy, long driven by users' evaluations as to where it made best business sense to locate, are becoming decisions made to accommodate where the decision-makers live, he said. "It's subtle but it's a real factor. The decision-makers don't want to spend a good part of their days on the road between home and work."

Given that so many of the senior managers and key personnel of so many companies already reside in North City and North County, "where we live" is becoming a dominate factor in demand for commercial facilities in the region.

Reeder sees another change in the dynamics of the North City/County commercial real estate market, and this has the potential of an even greater impact. More and more, he said, the suburban municipalities north of Highway 56 are effectively down-zoning developable commercial sites for less intensive uses and, therefore, less impact on traffic.

"The North City/County commercial real estate market is in recovery," Reeder said. "We have a long way to go and there can be a lot of obstacles along the way, but the demand is there."

How an invigorated demand for commercial facilities in North City/County for proximity to the residences of key personnel will play out with municipalities' steps to reduce the number of workers to be accommodated by future commercial developments is anybody's guess. Presumably, these are issues that will be wrestled with by the San Diego Association of Government.

Maydeck is senior vice president of Berkman Communications.